What Drives the Urban Wage Premium? Evidence along the Wage Distribution

Abstract

This paper aims at disentangling the role played by different explanations on the urban wage premium along the wage distribution. We analyze the wage dynamics of migrants from lower to higher density areas in Italy, using quantile regressions and individual data. The results show that unskilled workers benefit more from a wage premium accruing over time, while skilled workers enjoy a wage premium when they migrate as well as a wage increase over time. Further, we find that for unskilled workers the wage growth over time is mainly due to human capital accumulation in line with the 'learning' hypothesis, while for skilled workers the wage growth is mainly explained by the 'coordination' hypothesis, i.e., cities enhance the probability of better matches between workers and firms.